JC Penny (JCP) management has missed an interest payment and may file bankruptcy.

music selection: “You And Your Friend” — Snake River Conspiracy

I originally bought CUSIP 708130AD1 on 19SEP2019 for 89.912.  I sold at 97 on 15NOV2019 making 61.33% annualized return after commissions and interest.  The bond then fell back into buy range.  I bought again on 21NOV2019 for 92.912.  I expected a quick flip when the bond traded close to par again.  Instead, COVID-19 has knee-capped a company that had good (not strong, but still good) cash flows and could service its bond.

Today, management delayed making an interest (coupon) payment on a different bond maturing in 2036.  They have a 30 day grace period to make good, else they will file Chapter 11 and reorganize.  I am hopeful that they will be able to reopen some stores at the end of April and see a rush of pent up demand fatten cash flows and persuade them to make good on their commitment to the 2036 bond holders.

I am however prepared for the possibility that management will choose to reorganize.  I previously calculated a liquidation value of about 55 cents on the dollar for JCP bonds.  That was a liquidation analysis and it is near certain the company would instead reorganize.  After that, much is up to a judge.  I would expect to get some mix of new bonds with a later maturity, high coupon, and shares.  This will most likely have a value greater than liquidating the company (else the judge will order liquidation).  Existing shareholders can expect to be wiped out.

I will probably end up losing money on this bond in the long run.

Devour your prey raptors!

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Update JCP bond CUSIP 708130AD1

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2 thoughts on “Update JCP bond CUSIP 708130AD1

  • April 17, 2020 at 4:25 pm
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    What’s the price you could get for the bond today? Given the current market enthusiasm, and the possibility of financial crisis in the next several months, now might be the time to cut one’s losses. A blowup in your portfolio is not needed right now. Sears bondholders watched the lawyers suck that company dry.

    Reply
    • April 17, 2020 at 10:53 pm
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      About 12. 🙁 It dropped like a rock on the announcement. At this point, I expect to get more in a re-organization than 12 cents on the dollar.

      Reply

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